How to Get a Loan to Start a Business: Types of Financing and How to Apply

Updated on January 6, 2022
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How to Get a Loan to Start a Business

Traditional lenders may be hesitant to finance a young company with no business history and no proven revenue. Startups have a better shot at securing financing when the founders do some preparation before starting their search.

To get a startup business loan, you’ll need to follow the following steps:

  1. Review your startup costs
  2. Get your documents and registrations together
  3. Check your qualifications
  4. Choose the right startup loan

Here are four common types of startup loans:

Let’s get started.

See All Your Loan Options

1. Review the Startup Costs You Need to Cover

Here are some common costs that come with starting a business:

  • Equipment purchases, like cash registers, machinery, and vehicles
  • Technology purchases, like computers, tablets, and printers
  • Initial inventory purchases
  • Permits and licenses, like city, country, and state licensing
  • Initial office supplies
  • Business furniture

After you pay these initial costs, you’ll have ongoing expenses—like taxes, rent or mortgage payments, employee payroll, etc.—that’ll you need to cover as you grow your startup.

Once you have a solid understanding of how much funding you need, you’re ready to pursue your startup funding options.

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2. Get Your Documents and Registrations Ready

Usually, when you’re applying for a business loan, lenders want to you to demonstrate months or even years of steady revenue. That’s not possible for a young company.

Instead, startups will need the following materials to apply for financing.

A Business Plan

Your business plan should include your financial projections—future sales, profits, income, cash flow, and so on—and more qualitative goals for your business. How will you make a unique and important contribution to the market you’re in? Where, and how quickly, will your business grow?

If you haven’t made one yet, here is a business plan template you can use to put one together.

Licenses, Registrations and Permits

Before they fund your startup, lenders will want to see that you’ve taken the steps to make your business official.

This means that you’ve officially filed your business with the necessary parties and have all the required licenses and permits needed to operate your business.

Other Documentation

Business loan requirements will vary from lender to lender, but there are some documents that almost every lender will require. These include:

  • Bank statements.
  • Income statements, if you have them.
  • Your personal tax returns.
  • Your resume.
  • Your financial projections.

3. Check Your Qualifications for a Startup Loan

Once you have your paperwork in order, you must check to see if you can actually qualify for the loan you need. That means looking at the following criteria.

Your Personal Credit

As a startup founder, you won’t necessarily have any established business credit history to prove your creditworthiness. So, lenders will look at your personal credit score as a way to gauge how reliable you’ll be as a borrower.

Banks will generally offer financing to borrowers with credit scores of 680+. Anything below that and you’ll likely be a better fit for a non-bank lender.

Before you get too far into your search for getting a startup business loan, make sure you know where your credit score stands. If it isn’t where you want it to be, you can take steps to improve it.

Your Cash Flow

Cash flow measures the cash coming in and out of your business. As a startup, you might find that more cash flows out than into the business. That’s a common problem many newer businesses face.

It’s important to look into the strength of your cash flow before you take out financing to grow your startup. Many startups only qualify for daily or weekly payment loans, which can put a real dent in cash flow. If you have strong cash coming in each week, then you may be fine covering frequent payments. But you don’t want to end up in a situation where you can’t cover your loan payments because your cash flow is weak.

Revenue and Time in Business

In the eyes of a small business lender, the more time you have in business, the better.

Many online lenders also require a minimum annual or monthly revenue to qualify for any type of loan. They want to make sure you’re bringing enough money in on a regular basis to cover your loan payments.

When it comes to startup loans, you might have limited options at first because you haven’t been in business long enough to start making any money.

If you struggle to find a startup loan and you can wait to apply for financing, consider doing so. You’ll have more options available to you if you have a year or even six months in business.

Choose the Right Startup Loan

Broadly speaking, here are your startup loan options:

Loan amount Loan repayment term Interest rate Annual revenue Credit score Best for
Equipment financing
Up to 100% of equipment value
Expected life of equipment
8% – 30%
Over $130,000
Purchasing equipment to start a business
Business line of credit
$10,000 – $1 million
6 months – 5 years
 7% – 25%
Paying for a wide variety of business startup costs
Business credit card
 Varies by on creditworthiness
 Varies by card issuer
Varies by card issuer
Varies by card issuer
Paying for a wide variety of low-cost startup expenses
Credit line builder
Paying for a wide-variety of high-cost startup expenses while building business credit

Equipment Financing

If you’re starting your business from scratch, you’ll probably need to purchase some equipment to get your company up and running. You might need to buy cash registers, computers, delivery vehicles, or machinery. Unfortunately, the equipment you need to start your business can be pricey—and you might not be able to pay for it out-of-pocket.

Luckily, you can use equipment financing as a startup loan to help you pay for these costs. With equipment loans, you can finance up to 100% of the cost of the equipment you need.

With equipment financing, the piece of equipment you’re purchasing acts as collateral for the loan. The amount you get for the loan depends on the value of the equipment—which is a good thing if you’re just starting up and you don’t have a strong track record for your business yet. Because the equipment acts as collateral, lenders are able and willing to take a little more risk and offer a lower interest rate than they would with other types of loans.

Business Lines of Credit

If you’re looking for an all-purpose startup loan that can finance your business’s ongoing operations, you might want to consider a business line of credit.

A business like of credit is a pool of funds that you can tap into whenever you want or need. Once you pay back what you’ve taken out, plus interest, your line of credit gets refilled to its original amount.

When you open a business line of credit, you can use the funds for a number of things, whenever they arise:

  • Supplement gaps in cash flow
  • Get more working capital
  • Buy more inventory
  • Pay off more expensive debt
  • Payroll for temporary employees
  • Backup coverage of unexpected costs

Business Credit Cards

Using a business credit card as a small business loan gives your startup access to a revolving line of credit. This means that you always have the capital on hand to use for purchases or cash withdrawals, without hassle or delay.

What’s more, business credit cards are also easier to acquire than loans, don’t require any collateral, and can be used for a wide variety of expenses. Some business credit cards will offer you a 0% introductory APR, which means you won’t initially pay any interest on the funds you use. Just make sure that you can pay the balance before the rate increases.

Check out Fundera’s guide to the best startup business credit cards.

Credit Line Builder

With a credit line builder, you work with a financing company to apply for multiple business credit card applications at once—saving you time and effort.

You’re then approved for a credit amount that will equal the combined maximum amount of all the credit cards you qualified for. Now, you have access to that set of credit cards, and you can use them to make purchases—and quickly build business credit.

You’ll need to be careful that you don’t spend too much with any of the business credit cards available to you. Late payments and high utilization across multiple business credit cards can really hurt your credit score. One late payment might not lower your credit score too much, but if you get behind a few months in a row, your credit score will take a serious hit.

Meredith Wood
Vice President and Founding Editor at Fundera

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email:
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